The 7 Best Investment Funds to Navigate a Possible Recession


  • Prep against a downturn with the best investment funds to weather a possible recession.
  • Vanguard Utilities Index Fund (VPU): VPU helps keep the lights on (literally).
  • iShares US Insurance ETF (IAK): IAK may benefit from rising interest rates.
  • Consumer Staples Select Sector SPDR Fund (XLP): XLP enjoys permanent demand.
  • Vanguard Energy Index Fund ETF (VDE): VDE aligns with core realities.
  • Schwab US Dividend Equity ETF (SCHD): SCHD provides a measure of stability.
  • iShares Morningstar US Equity ETF (ILCB): ILCB banks on top-performing companies.
  • Vanguard Health Care Index Fund ETF (VHT): VHT delivers significant relevancies.
best investment funds - The 7 Best Investment Funds to Navigate a Possible Recession

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Though hardly a heartwarming subject, investors may need to focus their attention on the best investment funds to prepare for a possible recession. To be fair, many pundits across the aisle leveled several apocalyptic scenarios since the start of the coronavirus pandemic. However, an increasing number of sober-minded experts voiced their concerns about an economic slowdown.

What’s more, recent events suggest that a recession is more than likely. Particularly, the November jobs report came in much hotter than anticipated. Ordinarily, such a circumstance would be cause for celebration. However, it implies that the Federal Reserve’s efforts to contain inflation failed. Therefore, the central bank must get serious about raising interest rates.

Unfortunately, such a deflationary tactic may finally force the economy into a recession. If it does, you may have a better chance of success through the best investment funds.

VPU Vanguard Utilities Index Fund $157.71
IAK iShares US Insurance ETF $91.59
XLP Consumer Staples Select Sector SPDR Fund $76.48
VDE Vanguard Energy Index Fund ETF $120.69
SCHD Schwab US Dividend Equity ETF $77.32
ILCB iShares Morningstar US Equity ETF $55.10
VHT Vanguard Health Care Index Fund ETF $255.91

Vanguard Utilities Index Fund (VPU)

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Representing the best exchange-traded fund for the utilities sector according to U.S. News & World Report, Vanguard Utilities Index Fund (NYSEARCA:VPU) deserves closer inspection for those concerned about a possible recession. Fundamentally, people need access to power and other critical services. Therefore, even the most embattled households will attempt to find some way to keep the lights on. Since the start of the year, VPU gained 1.7%.

While not the most glamorous among the best investment funds to protect against a downturn, VPU represents a sensible avenue. The ETF’s top holding is NextEra Energy (NYSE:NEE), a powerhouse in the renewable energy segment. Coming in second place stands Duke Energy (NYSE:DUK), an enterprise that benefits from millennial migration trends. At time of this writing, all of VPU’s holdings call the U.S. home, providing geographic reassurances. As well, VPU’s expense ratio sits at only 0.10%. In contrast, the category average pings at 0.42%.

iShares US Insurance ETF (IAK)

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Another name among best investment funds for downturn protection is iShares US Insurance ETF (NYSEARCA:IAK). Historically, the broader insurance segment represents a viable arena to park one’s money during periods of rising interest rates. That’s because the relationship between rates and insurance stocks is linear: as one metric rises, so too does the other.

Underneath the hood, IAK’s top holding is Chubb Limited (NYSE:CB). As the parent company of Chubb, it provides insurance products covering property and casualty, accident and health, reinsurance and life insurance. In second place stands Progressive (NYSE:PGR), best known for its auto insurance policies. Considering that most states in the U.S. require auto insurance, Progressive benefits from a captive audience.

Rated number 10 among ETFs in the financial segment according to U.S. News & World Report, IAK features an expense ratio of 0.39%. In comparison, the category average is 1.16%.

Consumer Staples Select Sector SPDR Fund (XLP)

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While the broader retail segment may come under fire if a recession materializes, certain subsegments should hold out better than others. That’s why investors ought to consider the Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP) as one of the best investment funds to mitigate a potential downturn. Essentially, consumer staples involve necessary products, such as food and water. Therefore, people must buy them or suffer permanently devastating consequences.

Not surprisingly, XLP’s top holding is household goods giant Procter & Gamble (NYSE:PG). Slotting in second place is PepsiCo (NASDAQ:PEP), the beverage and snacks stalwart. Also worthy of consideration is Costco (NASDAQ:COST), which slots in at fourth place. Since Costco caters to a wealthier consumer base, it should weather economic storms better than many other companies. Finally, XLP features an expense ratio of 0.10%. That’s significantly lower than the category average, which stands at a lofty 0.44%.

Vanguard Energy Index Fund ETF (VDE)

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Easily among the most painful (but necessary) lessons that 2022 delivered centered on energy dependencies. With Russia’s invasion of Ukraine, many western nations scrambled to find alternatives to Russian-sourced hydrocarbon commodities. While many pivoted toward renewable alternatives, implementation at scale will take years. That’s why Vanguard Energy Index Fund ETF (NYSEARCA:VDE) ranks among the best investment funds to navigate a global downturn.

Like it or not, hydrocarbons will probably remain relevant for a long time. In the meantime, VDE and its ilk can soak up investor demand. On a year-to-date basis, VDE gained almost 48% of market value. Its top holding is Exxon Mobil (NYSE:XOM), which surged to relevance following the uncertainties of the Covid-19 crisis. Coming in second place is rival Chevron (NYSE:CVX). Geographically, all investments under VDE are headquartered in the U.S. Currently, VDE features an expense ratio of 0.10%. In comparison, the category average is 0.46%.

Schwab US Dividend Equity ETF (SCHD)

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During times of troubled economic cycles, the best investment funds often target established businesses. Therefore, those concerned about brewing pressures on the horizon should look into the Schwab US Dividend Equity ETF (NYSEARCA:SCHD). Per its prospectus, SCHD seeks to target the total return of the Dow Jones U.S. Dividend 100 index.

By definition, dividends must come from somewhere. Thus, you don’t see too many purely growth-oriented companies provide passive income. The thing is, under a rising interest rate environment (deflationary), growth firms don’t do so well.

Interestingly, the top two holdings for the SCHD fund are pharmaceutical giant Merck (NYSE:MRK) and tech juggernaut IBM (NYSE:IBM). Regarding the latter, I’ve spoken about Big Blue several times, noting its forward yield of 4.42%. Also, IBM enjoys 28 years of consecutive dividend increases, a status it won’t give up without a fight. SCHD features an expense ratio of 0.06%. In contrast, the category average stands at 0.38%.

iShares Morningstar US Equity ETF (ILCB)

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For the final two ideas for best investment funds to navigate a possible recession, I’m going to explore the higher-risk realm, starting with iShares Morningstar US Equity ETF (NYSEARCA:ILCB). According to its prospectus, the ILCB seeks exposure to a combination of large and medium-capitalization firms. In my opinion, the approach is a sound one, considering that investors receive exposure to both industry stalwarts and promising enterprises that rank well above the purely speculative categories.

Perhaps not surprisingly, then, ILCB’s top holding is consumer technology behemoth Apple (NASDAQ:AAPL). Not too far behind is Microsoft (NASDAQ:MSFT), an all-around excellent idea should you feel concerned about a recession. In terms of sector weighting, tech takes the top spot at 24.09%. Healthcare and financial services come in at second and third place at 15.35% and 13.59%, respectively. Finally, ILCB features a subterranean expense ratio of 0.03%, which should appeal to cost-conscious investors. In comparison, the category average is 0.41%.

Vanguard Health Care Index Fund ETF (VHT)

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Historically, health-related names often comprise the best investment funds to tackle a potential downturn. Essentially, this segment benefits from inelastic demand, where demand stays constant irrespective of pricing fluctuations. In some ways, it’s a cynical approach to market ideas such as Vanguard Health Care Index Fund ETF (NYSEARCA:VHT). However, considering the lack of great opportunities during these troubled times, you gotta do what you gotta do.

At the top of VHT’s holding list is UnitedHealth Group (NYSE:UNH), carrying 9.1% of net assets. In second place stands pharmaceutical and over-the-counter medicines giant Johnson & Johnson (NYSE:JNJ), carrying 7.99% of net assets. Also worth mentioning is AbbVie (NYSE:ABBV), which sits in fifth place. AbbVie owns the prized Botox franchise, which may become exceptionally relevant due to social normalization trends. While VHT may be down 4% for the year, it gained over 4% in the trailing month. Presently, the ETF carries an expense ratio of 0.10%. The category average stand at 0.52%.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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